It’s the dream of every small business owner: selling the business someday for a handsome price. Making that dream a reality takes time and effort. Here are 15 ways to make your business attractive to potential buyers.
1. Show a consistent profit.
Most buyers seek a business that has been profitable for at least two or three years. Let’s say that three years ago your business had a great year. Two years ago you lost money. And last year’s profits were only mediocre. A prospective buyer is likely to feel uneasy about what the future holds. In that situation, it makes sense to delay selling while you work on producing solid profits.
2. Resolve outstanding legal problems.
No potential buyer wants to face lawsuits filed by unhappy customers or disgruntled employees. If you’ve been receiving demand letters from an angry employee you recently fired, resolve the problem now.
3. Demonstrate that accounts receivable can be collected.
You may want to include your accounts receivable in the sale. If so, you’ll need to show that they are collectable. Begin by putting together an aging chart that shows how long the bills have been outstanding — 30, 60 or 90 days. Eliminate any dicey accounts by settling with the slow pays and writing off the deadbeats. The accounts that remain should have a long record of timely payment.
4. Clearly explain your business finances.
Your accounting protocol should be consistent from year to year. Income, costs, and cash flow should be self-evident. A shoebox full of check stubs and deposit slips won’t do the trick, nor will profits manufactured by questionable or overly aggressive accounting tactics.
5. Provide a convincing business plan for the future.
The buyer will want to build on what you’ve done and hopefully do it even better. A business plan can fire the buyer’s imagination with specific ideas on where to go. You need one that looks ahead to a time when you’re no longer in charge. It can keep the buyer’s enthusiasm alive during the nervous days before closing when
buyers can get cold feet.
6. Secure beneficial relationships.
Good relationships with customers and suppliers can impress a buyer. But unless you can point to solid contracts, a buyer may worry that these relationships are personal and not easily transferable. If you can position the success of the business as independent of you personally, you’ll get a better price.
7. Show that experienced employees will stay on.
Able employees can be a strong selling point. Consider offering employment contracts that commit key people to work for the business for at least a couple more years. You can also include a covenant not to compete. This can help further reassure the buyer that your key employees won’t start working for a competing business.
8. Lock in your lease.
The security of being able to operate the business from its current location can be crucial. The buyer may want to lock in a lease for several years. If you rent month to month, or if your lease runs out soon, negotiate with the landlord for a long-term lease. Make sure the lease will remain in effect even if you sell the business.
9. Disclose all relevant facts.
The buyer wants to be able to trust you, so disclose even negative facts. Don’t leave it to the buyer to discover negative information about your business. For example, if an exclusive contract with a major customer is about to end, let the buyer know.
10. Spruce up your premises.
Apply a fresh coat of paint. Fix broken windows and cracked tile. Get rid of clutter.
11. Make upgrades and repairs.
Maybe it’s time to install better lighting or signage, replace old carpets, and buy new workstations. If repairs are the landlord’s responsibility, insist the work get done to your satisfaction.
12. Get your inventory in shape.
If you have a retail or wholesale business, sell or dump all stuff that you’ll never sell for a decent price. A buyer doesn’t want to pay good money for inventory that can’t be sold.
13. Make sure equipment works.
Repair or replace equipment that’s not performing optimally. When you demonstrate your technology
to a buyer, you want it to work the first time, every time.
14. Provide a clear picture of how you get compensated.
You may receive a salary, bonus, fringe benefits, or all of these. Of course, you’ll inform buyers about these forms of compensation. But also list non-cash perks. These can be such goodies as business related travel and entertainment, or a business car that’s tax deductible.
15. Have a believable explanation of why you’re selling.
Few business owners just walk away for no reason from a profitable business. Be able to convince the buyer that you’re cashing in your chips now for a good reason. Examples include retirement, starting a new career, relocating with a spouse, or going back to school.
